Category Archives: compliance

There is this axiom that says: “If you can’t measure it, you cannot manage it”. That is true to a certain extent. But the flip side of this axiom is that if you measure the wrong thing, you can end up with a disaster.

There is a big refinery in the U.S. that offers a classic case in point. After its corporate office acquired another major refinery in the 1990s, senior management ordered a significant budget cuts across the board. This impacted the maintenance budgets in all of its refineries. At the same time, the CEO instituted personal safety measures throughout the company. One well known example was that all employees must carry their hot beverages in closed cups. This was to avoid scalding of employees from spilled hot liquid.

The company also instituted a “Getting Health, Safety and the Environment Right” policy – known as GHSER.

The company started tracking OSHA incident rates as a key safety metric at its refineries. However it did not track Process Safety Management key performance indicators such as closure of action items, equipment inspections, and relief valve testing. These were not incorporated into the GHSER. At one of its refineries, the OSHA incident rate was very low in the years leading to 2005. At the same time, equipments were in a continuing state of deterioration due to the reduction in maintenance budget. Personnel working with the equipment at the refinery sensed that a major accident was about to happen any time. In 2005, a production unit at the refinery exploded and killed 15 persons and injured hundreds.

Management thought plant safety was doing fine based on the personnel injury rate. It was measuring the wrong metric.

Many companies track performance using metrics such as kilowatt-hour, water consumption and wastes generated per unit of production. These indices can be very helpful as a trend line within a specific production unit over time. They can provide managers valuable information on how well the unit is working over time. Any deviation from the normal trend line will alert operational staff to look for underlying problems.

Unfortunately, these indices are not very useful when they are applied across the board to different productions at different locations.

Yet some some managers make the mistake of grouping all these indices and distilling them into one single number and try to rank a company’s overall environmental performance based on such singular index. They call them “green index” or “compliance index” with the notion that a company with a higher green index is performing better than others based on some hypothetical and arbitrary environmental ranking scale.

Such practice is misleading and can be downright dangerous. A company’s environmental performance comprises many varying factors. To assign a single value or index to represent a company’s environmental performance would be akin to the three blind men describing an elephant by touching different parts of the beast. One describes the elephant as a long thick hose; another describes it as a solid stump and the third describes as a piece of large flapping fan.

They are all correct in parts and all wrong with the complete picture.

The impetus of condensing environmental performance into a single index comes from consultants who are trying to sell services to customers in the guise of “making life easier” for their clients. So they concocted these numbers which are misleading and not very useful.

There was one young consultant in Canada who suggested that these single digit indices would help an environmental auditor. The auditor could just review these indices instead of having to review reams of raw data and reports. That was one consultant who has no idea on how to perform an environmental audit.

There are also software vendors out there who promote complicated programs that purport to provide environmental indices in the guise of “efficiency”. Very often, we find the purchasers of these software programs being reduced to data entry slaves or they are tied into long term data maintenance contracts. This is a clear case of “Caveat Emptor”.

There was a discussion in LinkedIn a few days back when an environmental consultant was lamenting openly why the federal government was immune from federal environmental laws!! When asked who told him that nonsense, he proudly announced that his authoritative source is an attorney (so it must be true). The attorney also told him that the federal government could pollute its own land due to sovereign immunity and anyone can do what he wants to his own property. Just imagine that! So we have a clueless attorney advising an even more clueless environmental consultant who ought to know better. We figure the attorney must be an old real estate fellow who had never heard of CERCLA and was in a coma when sovereign immunity was done away with many years ago.

I have been to conferences where I posed a difficult question (about disclosure) and someone would say: “I will check with my attorney”. It was as if the attorney has all the answers – and correct answers at that. If that were the case, there would not be a robust judicial system in this country where two attorneys enter a courtroom and out comes one winner.

When I worked for a multinational, our law department (30 plus corporate attorneys) rarely handled any specific EPA or OSHA cases. They went straight to outside counsel. And righty so.

It is important to understand that not all attorneys are the same. It is a simple enough principle (attorneys and engineers all have their own specialties within their own professions) and yet it is often overlooked. You should no more hire a civil engineer to design a refinery than to hire a chemical engineer to build a dam.

Always do your own due diligence before accepting an attorney’s words or anyone else’s. Or else you are going to look like that consultant in LinkedIn who was misled into thinking sovereign immunity still exists for federal agencies.

In my last blog, I discussed the factors an agency such as EPA would use to determine if it wants to proceed with criminal investigation. That’s step one of a two-step process. Once an agency completes its investigation, it may then refer the case to the prosecutors for prosecution.

Will the prosecutor exercise its prosecutorial discretion? That’s the second step.

The best way to demonstrate how a prosecutor decides whether to prosecute a case or not is by the following example of a tale of two companies. The US Department of Justice issued a memo some time ago outlining the factors a US Attorney should consider in targeting a company for criminal prosecution of environmental crimes.

The memo gives the examples of two companies – Company A and Company Z. A tale of two companies.

Here is what Company A does:

1. It regularly conducts a comprehensive audit of its compliance with environmental requirements.

2. The audit uncovered as information about employees disposing of hazardous wastes by dumping them in an unpermitted location.

3. An internal company investigation confirms the audit information. (Depending upon the nature of the audit, this follow-up investigation may be unnecessary.)

4. Prior to the violations the company had a sound compliance program, which included clear policies, employee training, and a hotline for suspected violations.

5. As soon as the company confirms the violations, it discloses all pertinent information to the appropriate government agency; it undertakes compliance planning with that agency; and it carries out satisfactory mediation measures.

6. The company also undertakes to correct any false information previously submitted to the government in relation to the violations.

7. Internally the company disciplines the employees actually involved in the violations, including any supervisor who was lax in preventing or detecting the activity. Also, the company reviews its compliance program to determine how the violations slipped by and corrects the weakness found by that review.

8. The company discloses to the government the names of the employees actually responsible for the violations, and it cooperates with the government by providing documentation necessary to the investigation of those persons.

According to DOJ, Company A would stand a good chance of being favorably considered for prosecutorial leniency, to the extent of not being criminally prosecuted at all.

At the opposite end of the scale is Company Z, which does the following:

1. Because an employee has threatened to report a violation to federal authorities, the company is afraid that investigators may begin looking at it. An audit is undertaken, but it focuses only upon the particular violation, ignoring the possibility that the violation may be indicative of widespread activities in the organization.

2. After completing the audit, Company Z reports the violations discovered to the government.

3. The company had a compliance program, but it was effectively no more than a collection of paper. No effort is made to disseminate its content, impress upon employees its significance, train employees in its application, or oversee its implementation.

4. Even after “discovery” of the violation the company makes no effort to strengthen its compliance procedures. For example, If the company had a long history of noncompliance, the compliance audit was done only under pressure from regulators, and a timely audit would have ended the violations much sooner, those circumstances would be considered.

5. The company makes no effort to come to terms with regulators regarding its violations. It resists any remedial work and refuses to pay any monetary sanctions.

6. Because of the noncompliance, information submitted to regulators over the years has been materially inaccurate, painting a substantially false picture of the company’s true compliance situation. The company fails to take any steps to correct that inaccuracy.

7. The company does not cooperate with prosecutors in identifying those employees (including managers) who actually were involved in the violation, but it resists disclosure of any documents relating either to the violations or to the responsible employees.

Under these circumstances, leniency by the DOJ is unlikely.

The only positive action by Company Z is the so-called audit, but that was so narrowly focused as to be of questionable value, and it was undertaken only to head off a possible criminal investigation. Otherwise, the company demonstrated no good faith either in terms of compliance efforts or in assisting the government in obtaining a full understanding of the violation and discovering its sources.

One of the most frequently asked questions at my 2- day seminars is this: “How do we make sure we are not targeted by the agencies for prosecution?” Another question is:”Are there specific steps we can take to keep EPA off our backs?”

To answer these two questions, one has to understand the steps an agency (such as EPA) must take before it prosecute company or person for environmental crimes. The agency must first decide to investigate and then the prosecutor has to decide to prosecute. Both steps involve discretion – investigative discretion and prosecutorial.

How does an agency like EPA exercise investigative discretion? There is an internal EPA memo written by the Director of Criminal Enforcement in 1994 that outlines what the agency looks for when deciding weather or not to investigate a company or person for environmental crime.

They look for “the most significant and egregious violators“. The memo also states that – as an example – the criminal provisions in the hazardous wastes laws are “not aimed at punishing minor or technical variations from permit regulations or conditions if the facility operator is acting responsibly.”

The agency generally focuses on the “presence of actual harm as well as the threat of significant harm to the environment or human health.” Examples cited in the memo include

illegal discharge, release or emission

failure to report

falsification of required records

deliberate misconduct

history of repeat violations

illegal conducts appear to present a trend

tempering with monitoring or control equipment

operating without a permit

The memo cites corporate culpability as a factor in deciding whether or not to investigate. The example EPA gives is “a company that performs an environmental compliance or management audit and then knowingly fails to remedy the noncompliance and correct any harm done“. Conversely, EPA states that “a violation that is voluntarily revealed and fully and promptly remedied as part of a corporation’s systematic and comprehensive self-evaluation program generally will not be a candidate for the expenditure of scare criminal investigative resources.”

This post gives you a summary of what will get you on EPA’s radar for criminal investigation and what will get you off. It gives you an idea of how EPA exercises its investigative discretion.

Our next post will discuss how the Department of Justice exercise its prosecutorial discretion.

Have you ever wondered why some companies never seem to get into trouble with the EPA or OSHA? You never see any bad press about them on TV or read about them in the newspaper. And then you see some other companies that seem to be constantly in trouble with the agencies for environmental violations. What sets these companies apart? Simple. The good companies do things that that bad companies don’t.

Here are some practical tips on how to avoid compliance nightmare.

Make sure you have an environmental policy that is signed by the CEO and communicated to all your employees. You should post it on your company website. An environmental policy is a simple declaration by senior management on how it plans to conduct its business in the context of the environment. The latest buzz word is “sustainability”. It means do no harm to the environment and save it for the next generation.

You should have a designated senior company officer whose job it is to oversee environmental and safety compliance. This person should have the confidence of senior management and can muster the necessary financial resources and institutional commitment to implement the company’s environmental policy and plans.

Make sure that you have a simple and straightforward emergency response plan. The main purpose of such a plan is to tell your employees what they need to do when something goes wrong. It must be concise, realistic and easy to understand. Do not make the same mistake that a major oil company did with its Oil Spill Response Plan in the Gulf of Mexico that failed to identify the worse case scenario and was lacking in realistic responses. None of the efforts made by the company following a massive oil spill was contained in the original plan even though it was over 580 pages long.

Make sure that your employees have ownership of your company’s environmental plans. In other words – the employees who have been charged with the responsibility of implementing an environmental plan should have been involved in some manner in the development of the plan. That is the only way they will have ownership of the plan and without ownership, nothing will be done.

Be sure to perform environmental due diligence prior to shipping your hazardous wastes to your Treatment Storage and Disposal Facility (TSDF). Check up on their compliance history by going to EPA’s Environmental Compliance History Online (ECHO) webpage. Never cede this responsibility to your transporter. If you ship wastes to a site that turns into a Superfund site, your company could be responsible for the entire cleanup cost of that site.

If you are planning on leasing a piece of property, make sure you perform a baseline environmental study on the site to identify any pre-existing conditions. In this way, when you return the leased property back to your landlord at the end of the lease, you only need to return it in the same condition that it was in when you started the lease.

Always maintain a good, cordial and professional relationship with the regulatory agencies. Do not waste your limited financial and human resources in constant battles with the agencies. Always negotiate with them in good faith.

Train and retrain your employees. The companies that stay in compliance are the ones that make sure their environmental professionals receive the necessary training to do their job. The companies that are constantly having environmental violations are in that situation because their employees are not trained and equipped to do the job.

Never automatically go with the lowest bidders when hiring vendors or consultants. Always go with the most qualified contractors to ensure compliance with environmental laws and safety standards.

Designate an employee whose job is to review Material Safety Data Sheets prior to storing any new chemicals. Many chemical accidents are caused by mis-placement of new chemicals that are not compatible with existing ones.

Stay on top of emerging new environmental regulations by subscribing to agencies’ free e-mail services. You can also subscribe to commercial services to keep abreast of the latest regulatory developments.

Always know your chemical spill reporting requirements before the actual spill occurs. Many states have additional spill reporting requirements that are more stringent than the federal requirments. Do your homework. You should match your inventory of chemicals against EPA’s List of Lists and determine the reportable quantities of each of these chemicals. So when you actually do have a chemical spill in the middle of the night, you will know exactly if the reportable quantity has been exceeded thereby triggering a reporting obligation.

Instruct your employees to never lie to an agency inspector. Tell them they should always be forthright with an inspector. Answer all questions truthfully when asked but never volunteer any information or speculate.

Be very careful with your e-mails. Always assume that your e-mails will appear on the front page of your local newspaper the next morning. If you do not want people to know about something, don’t put it in your email. For example, if you have just conducted a mock inspection of your facility in anticipation of an actual inspection and you have found a number of violations, it is absolutely not necessary for you to send out a broadcast e-mail to everyone stating that you have uncovered contained violations. What you want to do is to focus on fixing the problems you have uncovered rather than broadcasting your problems to the world in writing. The same strategy should apply after you have had a bad inspection. Instead of sending out an e-mail to everybody stating that the inspector has found numerous violations during the inspection, you should send out an e-mail to everybody reminding them of all the things that they should be tending to without making any reference to the inspection. In that way you achieve the same goal-getting people to improve their performance-without admitting to those violations.

Always follow up on your internal audits. Never perform an internal audit unless you have the financial resources and management commitment to fix any problems that might come up during the audit.

Voice objection as soon as you are made aware of potentially illegal activities within your organization. If anyone within your organization – especially at the senior management level -should suggest any kind of illegal activities, you must speak up against it forcefully. Remember: silence means acquiescence.

If you follow the above suggestions, you should be able to avoid environmental compliance nightmare.

A few days ago, BP signed a Consent Decree with the Department of Justice and agreed to pay $13 million for various Risk Management Plan violations under the Clean Air Act at its Texas City refinery. If you recall, there was a major incident at that refinery back in March of 2005 where 15 people were killed.

Thus far, BP has paid $137 million in fines which includes $50.61 million to OSHA for Failure to Abate violations under OSHA’s Process Safety Management standards. It has also spent $1.4 billion in corrective action. The OSHA fine is the largest fine in OSHA’s history.

BP conducted many internal environmental and safety audits before the March 2005 incident. Many safety and environmental issues were raised but little or no action was taken – according to the Chemical Safety Board investigators.

There are rules on how to write an audit report that is readable and can convey the message to the readers. Here are just a few of them:

Use simple language. Do not use fancy words to impress the readers. Most readers are generally not impressed by big words. Always use familiar words. That does not mean you should not use long words. The word “instantaneously” is long but it is also familiar to most people. The word “alb” is short but it is not too familiar to many people.

Get rid of deadwood. Here are some examples. Instead of saying “in the month of August”, just say “in August”. Instead of “a fine in the amount of $2000”, say “a $2000 fine”. Use “daily” instead of “on a daily basis”. Write as if you are being charged for every word – and not as if you are being paid for every word.

Write short sentences. Break up those long sentences into shorter ones. This makes it a lot easier for the readers.

Stick to the facts. If you could not find a weekly inspection checklist, say so in your report. Don’t ay that the weekly inspection was never done. Just because you could not locate the checklist does not mean that the inspection was never done. The unavailability of the checklist may well be a separate finding.

Be concise and precise. If you inspected 24 drums of hazardous wastes and 17 of them did not have “hazardous waste” labels on them, say so. Don’t say “many drum have no labels on them”. Say “17 out of 24 have no labels.”

Avoid excessive use of acronyms. Don’t try to bedazzle your readers with your knowledge of technical terms and jargons. Keep in mind that many readers of your audit report are not engineers or scientists. Many senior managers are attorneys, accountants and MBAs. Acronyms such as PSD, RCRA, TRI, CERCLA, TSCA, RMP, PSM, etc will put them in a coma.

Be specific in your conclusions. If you are doing a compliance audit and everything appears to be in order, the only thing you could possibly say is that “based on your review and visit on the day of the audit, the facility appears to be in compliance (on that day).”